This blog's purpose is to document the local excesses from the housing bubble era.

Tuesday, September 16, 2008

When is a good time to buy?

There will always be buyers wondering if now is the time to jump in. The interest rates are still low and house prices have fallen pretty dramatically already. The pool of real buyers is a lot smaller since a down payment and good credit are now requirements. People have to juggle the unknowns of how much more the housing market will still fall against when interest rates will go up. This uncertainty is explored in this Bloomberg article titled Mortgage Seekers Find Rates Are Down, Credit Standards Tighter. Lets take a look -

Existing home prices have fallen 7.7 percent since their July 2006 high and rates dropped below 6 percent last week for the first time in more than three months. The obstacle for people ready to buy is finding a willing lender, said Suzanne Bach, senior vice president of New York-based Guardhill Financial Corp., and an 18-year home lending veteran.

...About 75 percent of U.S. banks tightened standards on mortgage lending to the most credit-worthy borrowers in the three months ended in July, according to the Federal Reserve's quarterly Senior Loan Officer Survey released Aug. 11.

...Around the country, homebuyers looking to purchase property for more than $417,000 are facing some of the toughest scrutiny, said Marve Stockert, executive director of the Illinois Association of Mortgage Professionals and a 38-year veteran of the industry.

``The most difficult thing now is the appraisals are being scrutinized so much more than they have ever been,'' Stockert said. ``The higher the sale price, the more scrutiny that is happening. We're talking two or three appraisals on the same property."

The purse strings are being tightened. Lenders have no choice. The big gamble is to jump on a low interest now but risk paying too much for the property versus waiting for the house prices to fall more but risk paying a higher rate. Another risk is finding a lender as time goes on. The pool of lenders, like the pool of buyers, is also continuing to shrink.

But then there is this paragraph that stands out on its own. Its too good and too out there to be part of the rest of the story -

The credit squeeze is contributing to falling home sales. In July, the National Association of Realtors' index of pending home resales fell 3.2 percent, a decline NAR Chief Economist Lawrence Yun blamed on ``overly stringent lending criteria.'' The index is down 6.8 percent since July 2007.

The plunging housing market, record foreclosures on bad loans that are making financial giants tumble like dominoes and the National Association of Realtors are complaining that the criteria is" overly stringent"? Spin is one thing but this is not even reality.

Maybe Lawrence Yun should start up his own mortgage firm and teach us how to do it right this time. The wonder of no doc loans, pick-a-payment, and piggyback mortgages to anyone who had a pulse - and probably sometimes to those that did not. Requiring any down payment is too stringent! Requiring good credit is too stringent! Requiring an honest appraisal is too stringent! 1

1 comment:

You're always going to find people that think it's a good time to buy. People want to be optimistic and think they found a property at a good deal or that in the long run it'll even out.

When the word subprime first started getting major news attention, people were told that it would be limited to some of the lenders that dealt in more risky loans, then the news finally reports that it's more than that. Then we're told that well it's just a small fraction and it shouldn't be a big deal and that turns out not to be true either. Since then we've had major losses and failures in the banking/wall st sector.

In Bergen County, 2007 sales volume was similar to 1996 and 2008 volume may be similar to 1991.

This bubble was allowed to go for too long and it's not just going to deflate, it's exploding and we're seeing the first results of that.